The cryptocurrency market is calm in the past few weeks, with no considerable movements happening in any direction.
The major exceptions to the lack of volatility seem to be event-driven occasions like on October 14th, when the United States Bureau of Labor Statistics announced the inflation numbers for September. The Bitcoin price went on a rollercoaster, plunging and then skyrocketing within the hour.
Apart from this, though, the market has been rather static. Now, Glassnode – a popular analytics resource – argues that it’s like a coiled spring due for a burst of volatility.
Reiterating the above, Glassnode points out that the Bitcoin market continues to consolidate within a fairly tight range and that almost “all of the extreme prices of the weekly range” were reached during a window of just 24 hours.
In response to US inflation data coming in slightly hotter than expectations, BTC prices traded down to $18,338, followed by a quick rally to a high of $19,855, before completing a round trip to the weekly open price.
At the time of this writing, the BTC price sits at around $19,594, up 2% on the day and attempting another shot at the critical resistance at $20K.
According to Glassnode, it is very uncommon for the BTC market to reach a period of such low realized volatility. Most of the prior instances of the kind were also preceding a highly volatile move.
For example, in the following 1-week realized volatility chart, we can see that when the values of the 1-week rolling volatility tumbled below 28% (current values) in a bear market, this phase almost always preceded significant price moves in both directions.
Relatively similar compression can be seen with another metric – the adjusted spent output profit ratio (aSOPR). It measures the average realized profit/loss multiple for coins that are spent on any given day.
If the value is around 1 in a bull market, this often acts as support because investors tend to increase their positions at around their cost basis. This is usually manifested as a “buy the dip” scenario. On the contrary, if the same value is in a bearish trend, it tends to act as resistance because investors attempt to exit their positions at a cost basis.
As the weekly average of aSOPR approaches the break-even value of 1.0 from below, it is increasingly likely that volatility is on the horizon, either as a breakout, or yet another rejection.
Glassnode also points out that volatility also seems to be brewing in the derivatives markets. This is because the options pricing of the short-term implied volatility has already reached an all-time low this week, currently sitting at 48%.
When this happened on several other instances in the past, it had preceded violent moves which often compounded by the deleveraging of DeFi and derivatives markets.
